For all the fine words spoken about the potential for managing payroll across multiple countries, reality is usually a compromise between grand vision and harsh practicalities.

Theorists paint a tempting picture of building a single global payroll set-up, where companies can run five, fifteen, fifty countries or more through a single software system or outsourcing arrangement. It’s a model that’s designed to help companies standardize on global best practices, deliver cost savings, increase efficiency, cut risk, improve the quality of payroll service, reduce compliance concerns, and generate high-quality reports and management information.

Back in the real world, however, the practicalities tend to be a little different. For one thing, no single vendor is capable of handling payroll in every country in the world, so for many companies the single global model is more of a statement of intent than a short-term deliverable. For another, you can’t just pick a global payroll model off the shelf, plonk it into your country operations and move onto the next project. Managing the transition from where you are today – which in many companies is little short of organized chaos – to where you want to be tomorrow involves significant change management, with all kinds of people, process, system, cultural and other challenges lying in wait.

Just as important, with the world mired in recession, some of the niceties of multi-country payroll no longer seem quite so pressing. In recent months some (but not all) vendors have witnessed a shift in their customers’ priorities, with the focus falling harder on cutting costs and away from the global model. Yes, it would be great to have one single payroll set-up managing all of your country operations – but if you can do it cheaper on a regional basis with a mix of vendors, who’s complaining? While the business case for any project of this nature should never be purely about cost, today’s economic conditions mean that the arguments for purchasing multi-country payroll software and services really do have to stack up in front of the finance director.

So if you’re looking to source a multi-country payroll vendor or software provider, where do you start?

An evolving market
Whether you’re looking to manage payroll in two or three countries or drawing up a strategy to tackle fifty or more, there are several factors to keep in mind from the outset. To begin with, this is a relatively immature market. While there are a number of long-established payroll players in the field – from the likes of ADP and Ceridian to enterprise software vendors SAP and Oracle – other vendors who are newer to the market also merit attention, including companies that may have a lower UK profile. After all, if you’re looking for multi-country capability, you need to look across all the regions you’re focusing on.  

Secondly, because the market is relatively immature, chances are you’ll need to partner with more than one supplier. Webster Buchanan Research defines multi-country payroll management as the ability to provide a centralized approach to payroll across multiple countries, while meeting local legislative, business and cultural requirements. Suppliers should be able to provide customers with a single view of their international payroll activities and ideally, a single point for data entry – and they should also provide one customer contract.

Of the small number of vendors who can meet these criteria, most are still fleshing out their coverage. While some multi-country payroll brokers (see below) have extensive coverage, many of the leading players ‘only’ cover between 20 to 50-odd countries, out of just under 200 recognized states around the world. Of course, this doesn’t mean that only a quarter of the world’s payroll population is covered: vendors tend to go where the money is, so you can expect a fair proportion of your major country operations to be covered. But just because you have a large employee population in one country doesn’t necessarily mean that your first choice vendor has done the localization work there, and you may find some surprising gaps in vendors’ coverage. Keep in mind that some vendors are constrained by their history: a supplier that’s particularly strong in Europe, for example, may have little if any presence in Asia Pacific. That’s fine if you’re only looking to centralize Western European territories, but it’s more of a problem if you’re developing a multi-continent strategy.

Many vendors are now relying on alliances to help flesh out their country coverage. In some cases this is done through their own developer community - companies like Oracle, for example, build their own country extensions but also encourage third party developers to create additional capability. Elsewhere, some vendors have teamed up with other multi-country providers. Logica, for example, which provides both outsourcing services and on-premise systems for multi-country payroll, has tied up with payroll provider Safeguard World International.  

Finally, it’s worth keeping in mind that in addition to focusing on the major developed countries, some vendors such as payroll broker Celergo additionally specialize in providing services in ‘hard-to-reach’ countries in Africa, Latin America and elsewhere where operations may be complicated by poor infrastructure or political instability.

On-premise and outsourcing vendors
While the number of vendors capable of delivering payroll across more than one continent is relatively small, the kinds of services on offer vary considerably. Webster Buchanan’s Multi-country Payroll Review, an independent research report assessing the capability of leading vendors and the pros and cons of their different approaches, divides the multi-country vendor market into on-premise software providers and five different outsourcing models. As well as differing in the way they provide services, these vendors also differ in the kinds of customers they target, with some focused exclusively on larger employee bases, others honing in on mid-sized and smaller countries – and others setting out to cater for both.

The on-premise software developers have typically designed their systems around a single engine that manages all the processes that are common to every payroll operation, regardless of the individual country (which is estimated to be as much as 70 per cent of all payroll processing). Country-specific software – often called country extensions – is then layered on top to handle local regulatory and cultural needs.

There are distinct differences between the leading products, from their core architectural design to the number of countries they support, so it’s important that the decision-making process includes IT experts as well as payroll, HR and finance. Of course, decisions about on-premise payroll are influenced by multiple factors, and companies that have standardized their ‘back-office’ operations on one enterprise-level software system may expect payroll to follow suit and use the same supplier. Keep in mind, though, that many organizations have successfully taken a ‘best-of-breed’ approach to their HR, Payroll and Finance systems by integrating software from different suppliers – so it’s worth looking at all your options.

For companies that prefer the outsourcing approach – or that choose to run on-premise software in their major territories and use outsourcers elsewhere – there are five main types of service:

Backbone outsourcers These providers work on a traditional ‘managed services’ payroll model – the same kind of services you would buy from a UK-only managed services provider, but extended to cater for the complexities of multi-country payroll. The service is provided using the outsourcer’s own IT infrastructure, which might be built on a product such as SAP or Oracle.

Brokers or aggregators Rather than processing each country’s payroll on their own infrastructure, brokers such as Patersons, Celergo and Safeguard World International have built a network of third party service providers to do it on their behalf, usually picking country-specific or regional specialists.

Typically, the broker takes payroll data from the customer and passes it on to its partners, although the customer will sometimes deliver data direct to the third party. After processing has been completed in each country, the broker uses aggregating ‘middleware’ technology to pull together all the data and provide customers with a single, central view of what’s going on. Part of the convenience for the customer in this relationship is that there’s typically one single contractual relationship with the broker, and what goes on behind the scenes in theory shouldn’t matter.

Not all brokers take a purist approach. Patersons, for example, has a large network of partners but is also building out its own country capability in specific territories.

Software as a Service or Hosted Services This is a fast-growing form of outsourcing in which the service provider runs payroll software on its own IT infrastructure and the customer uses it over the internet to process payroll in-house. It’s an IT-only approach: the outsourcer owns, maintains, upgrades and runs the software, but the customer is responsible for every other aspect of the payroll cycle, including processing. Hosted services offer a number of potential benefits, not least in taking away the hassle of running the software. They’re also typically provided on a subscription basis, so customers do not have to pay a license fees upfront, and it’s often quicker and cheaper to get the software up and running.

Business Process Outsourcing Business Process Outsourcing is a well- established business model where the service provider takes control of the bulk of the customer’s payroll operation, normally as part of a deal covering other business functions such as HR and finance. The approaches taken by BPOs such as IBM differ: some provide services on their own backbone infrastructure, others adopt a custom approach where they take over the customer’s existing systems – and some do both. Not all BPOs provide payroll-specific services in the multi-country field, so in some cases multi-country capability will only be offered along with HR services.

Hybrid providers Inevitably, many companies offer services that span multiple categories, offering a range of outsourcing services and sometimes – like NorthgateArinso and Logica – offering both on-premise and outsourcing services.

Finally, keep in mind that each of these different approaches presents its own potential benefits and challenges, all of which need to be addressed by practitioners as they develop a supplier shortlist. Take the broker approach. Because they’re partnering with local country specialists rather than building out their own capability, many of the brokers’ have a surprisingly broad reach, with at least two providers capable of covering more than 100 countries. At the same time, however, their business model is reliant on third parties, and some of them are relatively young companies. So prospective customers will need to assess their ability to scale, their customer references, the way they manage their partners and so on. Customers will also need to assess the quality of the IT middleware, which is critical to the success of the broker model.

The next edition of ‘Webster Buchanan’s Multi-country Payroll Review’, containing independent assessments of the leading players and an analysis of the different products and services on offer, will be published in July 2009. To purchase the current report at a discount and receive the updated version free of charge, visit our store!

This article first appeared in ‘Payroll Professional’, the magazine of the Institute of Payroll Professionals